Parliamentary Joint Committee on Corporations and Financial Services Money Matters in the Bush Inquiry into the Level of Banking and Financial Services in Rural, Regional and Remote Areas of Australia January 2004 Commonwealth of Australia 2004 ISBN 0 642 71215 8 Printed by the Senate Printing Unit, Parliament House, Canberra. MEMBERS OF THE COMMITTEE Senator Grant Chapman, Chairman Senator Penny Wong, Deputy Chair Senator George Brandis Senator Stephen Conroy Senator Andrew Murray Mr Anthony Byrne MP Mr Steven Ciobo MP Mr Alan Griffin MP Mr Gregory Hunt MP Mr Stewart McArthur MP SECRETARIAT Dr Kathleen Dermody, Secretary Ms Bronwyn Meredith, Principal Research Officer Ms Angela Lancsar, Executive Assistant Suite SG.64 Parliament House Canberra ACT 2600 T: 61 2 6277 3583 F: 61 2 6277 5719 E: [email protected] W: www.aph.gov.au/senate/committee/corporations_ctte iii DUTIES OF THE COMMITTEE Section 243 of the Australian Securities and Investments Commission Act 2001 sets out the duties of the Committee as follows: The Parliamentary Committee's duties are: (a) to inquire into, and report to both Houses on: (i) activities of ASIC or the Panel, or matters connected with such activities, to which, in the Parliamentary Committee's opinion, the Parliament's attention should be directed; or (ii) the operation of the corporations legislation (other than the excluded provisions), or of any other law of the Commonwealth, of a State or Territory or of a foreign country that appears to the Parliamentary Committee to affect significantly the operation of the corporations legislation (other than the excluded provisions); and (b) to examine each annual report that is prepared by a body established by this Act and of which a copy has been laid before a House, and to report to both Houses on matters that appear in, or arise out of, that annual report and to which, in the Parliamentary Committee's opinion, the Parliament's attention should be directed; and (c) to inquire into any question in connection with its duties that is referred to it by a House, and to report to that House on that question. v TERMS OF REFERENCE On 25 July 2002, the Chairman of the Parliamentary Joint Committee on Corporations and Financial Services announced that the Committee had agreed to inquire into the level of banking and financial services available to Australians living in rural, regional and remote areas of the country. The inquiry was to place particular focus on: (a) options for making additional banking services available to rural and regional communities, including the potential for shared banking facilities; (b) options for expansion of banking facilities through non-traditional channels including new technologies; (c) the level of service currently available to rural and regional residents; and (d) international experiences and policies designed to enhance and improve the quality of rural banking services. vii TABLE OF CONTENTS Members of the Committee iii Duties of the Committee v Terms of Reference vii List of Tables and Maps xvii Acronyms and Abbreviations xix Executive Summary xxiii Recommendations xxxiii CHAPTER 1 INTRODUCTION Establishment of the inquiry 1 Conduct of the inquiry 1 Structure of the report 2 Acknowledgments 3 CHAPTER 2 BANK BRANCH CLOSURES IN RURAL, REGIONAL AND REMOTE AUSTRALIA The trend in bank branch closures 7 The influence of globalisation on the banking industry 10 The context of branch closures 11 Deregulation 12 Financial regulatory policy 13 Technological developments 15 Changes in consumer preferences 16 Growing consumer demand for electronic banking 16 Banks investing in new technology 17 Summary 18 Demographics 18 The drift in population to larger regional centres and the ‘sponge city’ effect 19 Population shifts and bank branch closures 21 Regional shopping hubs and smaller towns 22 Questioning the nexus between population trends and branch closures 23 Conclusion 24 ix CHAPTER 3 IMPACT OF BANK BRANCH CLOSURES ON THE COMMUNITY General decline in the provision of services 27 Branch closures and the decline in service provision to country Australia 29 The effect of bank closures in country areas on local residents 30 Inconvenience and costs 30 Savings and security implications 31 Limited choices 31 Financial exclusion 31 The effect of branch closures on businesses in country towns 33 Daily banking affairs—inconvenience and costs 33 Safety and security associated with cash management 34 Fall in trade 35 Erosion of business-banker relationship and the loss of business opportunities 37 Limited choice in accessing finance 39 The effect of bank branch closures on the community 40 Conclusion 42 CHAPTER 4 MANAGING BRANCH CLOSURES Moratorium on closure and community reaction 45 Background to the protocol for bank branch closures 47 Development of the bank branch closure protocol 48 Notice of intention to close branch 51 Period of notice 51 Consultation 53 The transition period 56 Education and training 56 Services available after branch closure 57 Portability of accounts—costs associated with transferring accounts 58 Other disincentives to switching accounts 62 Omissions from protocol 63 Notice before changing the branch that manages the account 63 Community impact statement 65 Amendments to the branch closure protocol 66 Conclusion 67 x CHAPTER 5 COMPETITION IN THE BANKING INDUSTRY—WINNERS AND LOSERS Competition and contestability in the banking industry 71 Agribusiness 72 Retail banking transactions in country Australia 74 Conclusion 77 CHAPTER 6 ACCESS TO BANKING SERVICES IN AUSTRALIA 79 Anticipated branch closures 79 Current access to a banking service—overview 79 Statistics on access to banking services 80 APRA’s ‘Points of Presence’ database 81 Problems with definitions—branch and agency 82 Other difficulties in analysing the data 83 Lack of analysis 83 A map of the distribution of banking and financial services in Australia 85 Conclusion 87 CHAPTER 7 SHARED BANKING FACILITIES AND MOBILE BANKS Introduction 89 Shared banking 89 Perceived problems with shared banking 90 Potential to undermine quality and level of service 90 Conflicts in a shared facility environment 91 Administrative difficulties 92 Regulatory impediments—the Trade Practices Act 93 Regulatory impediments—Financial Services Reform Act (FSRA) 95 Mobile banks 97 Community support for mobile banking 97 Banks’ attitude to mobile banking 98 CHAPTER 8 CREDIT UNIONS, BUILDING SOCIETIES AND COMMUNITY BANKS A new regulatory regime for ADIs 101 Credit Unions 104 xi Building societies 105 Barriers to entry 106 Start-up costs 106 Portability and banking practices 107 Prudential regulations 111 Requirements under the FSRA 113 Status of non-bank ADIs 118 Lack of experience in servicing the financial needs of farmers 120 Levy on industry 121 Community Banks 122 The Bendigo Bank model 123 The Heritage Building Society model 124 The advantages offered by a community bank 125 Reinvigorate the economic life of a community 125 Dividends for the community 127 Establishing a community bank 127 Community support, commitment and determination 128 Leadership and business skills 128 Start-up costs 128 Failure or take-over 131 Owner-managed branches 132 Bank of Queensland 133 Conclusion 133 CHAPTER 9 AGENCIES AND POST OFFICES Agencies 135 Westpac 137 ANZ 139 Commonwealth Bank 139 St George 139 Bendigo Bank 139 Agencies associated with credit unions and building societies 140 Shortcomings 140 Limited services 141 Privacy and concerns about security 142 Banks’ view 142 Summary 143 Australia Post 143 xii Business banking 145 Shortcomings of Australia Post agencies 146 Privacy 146 Small business banking service 148 Scope for expansion 149 Summary 151 Conclusion 152 CHAPTER 10 RURAL TRANSACTION CENTRES CreditCare 153 Background to the RTC programme 154 The RTC program and Post Office outlets 156 RTCs—broad support 157 Support from local government 158 Support from financial providers 159 Shortcomings of RTCs 160 Implementation—slow start 160 Limited range of services 162 Meeting the needs of business 163 Strategies to expand services 164 Funding 166 Conclusion 168 CHAPTER 11 AUTOMATIC TELLER MACHINES AND ELECTRONIC FUNDS TRANSFER AT POINT OF SALE TERMINAL Background—ATMs and EFTPOS 173 ATMs and EFTPOS—consumer benefits 173 Fees and charges 174 Drawbacks for consumers 175 Distribution of ATMs and EFTPOS terminals 176 Costs and security 176 Limited services 177 Safety, security, competency and confidence 178 Physical access and industry standards 178 Foreign ATMs—fees and charges 180 xiii CHAPTER 12 TELEPHONE AND INTERNET BANKING Computer and internet use in Australia 183 Access to a computer 183 Access to the Internet 184 The growing use of the internet and telephone for banking purposes 186 Small business and electronic banking 188 Farmers and electronic banking 188 Overall trend in the use of electronic banking in country Australia 189 Provision of telecommunications services in country Australia 189 Overall accessibility to electronic banking 190 Inadequate infrastructure 191 Broadband 193 Affordability 197 Cash flow and cash management problems 199 Establishing a relationship between customer and banker 200 Conclusion 200 CHAPTER 13 THE POTENTIAL OF ELECTRONIC BANKING Using technology to bridge the divide 204 Electronic banking and customer relationships 206 The broader issue of access to financial advice and assistance 208 Use of video conferencing 209 Conclusion 210 CHAPTER 14 OLDER AUSTRALIANS Older people in rural, regional and remote Australia 215 Transport 216 Older